CAS Applicability, Coverage and Disclosure
Sourwine, Darrel A., Journal of Accountancy
There is still considerable confusion about when cost accounting standards apply.
Cost accounting standards (CAS), established by the Cost Accounting Standards Board (CASB), have applied to negotiated federal government contracts over $500,000 since the recodified standards were published in the Federal Register on April 17, 1992. Since then, all federal departments from Agriculture to Veterans Affairs have had a new set of procurement rules to administer. One year after these other rules became applicable, many of these departments still don't realize they could have CAS-covered contracts.
Businesses with Cas-covered federal government contracts have had to implement 19 new accounting rules that address the assignment, measurement and allocation of costs. (See exhibit 1, page 71.) Some standards restrict the latitude permitted by generally accepted accounting principles while others go beyond GAAP and the tax laws. The standards require careful reading; if they are not applied correctly, the financial impact on a company can be disastrous and penalties may result.
The standards are not the only complex and confusing rules; the rules for applicability and coverage and submission of a formal CASB disclosure statement also can be difficult to understand. (The disclosure statement is a formal description of the contractor's cost accounting system prepared by the contractor or a CPA and submitted to the government contracting officer.) Because there are so many novices (government agencies, contractors, accounting practitioners) and CAS expertise is limited, there is considerable opportunity for government contractors to make mistakes in applying and interpreting the standards and rules. This is where a company may rely on a CPA's expertise.
CPAs in industry and commerce already employed by companies with government contracts will be involved in the process even before a contract is awarded. If CAS applies to the contract to be awarded, the proposal must be priced using the standards in effect at that time. In addition, the disclosure statement may have to be submitted before the contract is awarded. Both situations could involve an accounting firm if the company does not have in-house expertise.
The six largest U.S. accounting firms already have government service divisions that deal with more than just CAS. However, now that CAS has been extended to all parts of the federal government, many more CPAs in smaller firms will need to become involved.
CPA involvement might range from being a consultant to being an expert witness. Consulting might begin with helping a contractor implement CAS and extend to negotiating on a client's behalf when the government and the contractor have different interpretations of the standards and rules. CPAs have been used by both the government and contractors when a CAS issue has been litigated. CPAs also have helped attorneys in CAS cases.
Before analyzing the standards themselves, all parties need to understand
* When a contract is covered by CAS.
* The extent of coverage.
* Who must complete the CASB disclosure statement.
The purpose of this article is to alleviate the confusion in each of these areas by clarifying the rules (not the standards) and eliminating myths and misconceptions.
The CASB rules, regulations and standards were recodified at title 48 of the Code of Federal Regulations, chapter 99 (48 CFR 99). Part 9903 contains sections that set forth the requirements for applicability, coverage, solicitation provisions, contract clauses and disclosure. This is the source of citations used in this article.
When is a contract covered by CAS? All contracts subject to CASB rules and regulations should include either the full coverage clause or the modified coverage clause from 48 CFR 9903. …